Northern Rock is abandoning its policy of encouraging customers to remortgage with other banks when their deal ends.
The nationalised bank has been criticised for its policy of actively encouraging customers to leave once their fixed-rate deal comes to an end, sharply cutting back on lending at a time when the government wants banks to lend more.
Newcastle-based Northern Rock said the policy had helped the bank pay back its government loan ahead of time but the government is keen to increase mortgage lending capacity in the market.
However, as Northern Rock was one of the banks offering mortgages with a loan-to-value of 125 per cent, customers were struggling to find lenders who were willing to take them on.
The aggressive stance to shrink its mortgage book was criticised by many for increasing the risk of repossession.
"This means that more mortgage customers will be able to stay with Northern Rock," the bank said. "A reduced level of redemptions will lead to Northern Rock repaying its loan to government at a slower rate."
The announcement comes as the government announces another plan to help the banks, as well as more assistance to Royal Bank of Scotland.
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